(1)

The objective of this Directive is to contribute to the proper functioning of the internal market and the Capital Markets Union, and to remove obstacles to the exercise of fundamental freedoms, such as the free movement of capital and the freedom of establishment, which result from differences between national laws in the area of insolvency.

(2)

Insolvency proceedings ensure the orderly winding up or restructuring of companies or entrepreneurs that are in financial and economic distress. In the context of financial investments, those proceedings, including the relevant safeguards for accurately assessing the value of those companies’ and entrepreneurs’ assets, are key, as they determine the final recovery value of such investments. The wide differences among substantive insolvency laws, acknowledged by Regulation (EU) 2015/848 of the European Parliament and of the Council (3), have contributed to increasing legal uncertainty and unpredictability about the outcome of insolvency proceedings. Large divergences in recovery value and in the time required to complete insolvency proceedings across the Union have negative repercussions on cost predictability for creditors and investors in cross-border situations in the internal market. This divergence among the rules of Member States reduces the attractiveness of cross-border investments, thus creating barriers and impacting the cross-border movement of capital within the Union and to and from third countries. Consequently, the harmonisation of certain aspects of insolvency law could require changes to be made to the laws of some Member States.

(3)

The integration of the internal market in the area of insolvency law through this Directive is key to improving the efficiency of the functioning of the capital markets in the Union, including enabling greater access to corporate financing. Therefore, it is necessary to lay down minimum requirements in targeted areas concerning insolvency proceedings, which have a significant impact on the efficiency and length of such proceedings, especially in the case of cross-border insolvency proceedings.

(4)

This Directive is without prejudice to individual and collective workers’ rights under Union and national law in the context of insolvency proceedings, in particular, Council Directives 98/59/EC (4) and 2001/23/EC (5), and Directives 2002/14/EC (6), 2008/94/EC (7) and 2009/38/EC (8) of the European Parliament and of the Council and national laws transposing them. In particular, this Directive is without prejudice to the obligations concerning the provision of information to, and the consultation of, workers and the rights of workers in the event of the transfer of an undertaking, business or part of an undertaking or business under those Directives and national laws transposing them, including where those national laws contain rules that are more favourable to workers or their representatives than those laid down in those Directives.

(5)

In order to protect the value of insolvency estates for creditors, national insolvency laws should include effective rules on actions for the voidness, voidability or unenforceability of legal acts, including legal transactions, that are detrimental to the general body of creditors and that have been perfected prior to the opening of insolvency proceedings (‘avoidance actions’). In order to determine whether a legal act is detrimental to the general body of creditors, it is necessary to take into account how the concepts of insolvency estate and participating creditor are defined. That is especially relevant where certain rights do not form part of an insolvency estate under national law but pertain to the debtor’s personal sphere, such as the right to enter into or end a marriage or adopt a child. The acceptance or rejection of an inheritance should not be subject to the rules on avoidance actions set out in this Directive.

(6)

Given that avoidance actions aim to reverse the detrimental effects of a legal act on an insolvency estate, it is appropriate to consider the detrimental effects of a legal act to have been caused at the moment the legal act is perfected and not at the moment the legal act is executed. For the purposes of this Directive, a legal act is considered to have been perfected when it produces legal effects in accordance with national law. However, where, pursuant to national law, the legal effects of a legal act are conditional upon it being entered in a public register, Member States should be able to provide that the legal act is considered to have been perfected as soon as all the other requirements for its effectiveness have been met, because the time it takes to enter a legal act in a public register is beyond the control of the debtor and the other parties to the legal act.

(7)

For the purposes of this Directive, the notion of ‘legal acts’ under the rules on avoidance actions should be interpreted broadly in order to cover any deliberate behaviour with legal effects that is of detriment to the general body of creditors, irrespective of whether the legal effects or the detriment is intended, including where the person performing the legal act has no fraudulent purpose, notwithstanding the provisions in other areas of law. However, acts that are performed by a person who does not act consciously or who otherwise acts without exercising their free will should not be considered as legal acts under this Directive. Member States should be able to provide that the notion of ‘legal act’ also includes omissions, as it is of no significant difference whether creditors suffer a detriment as a consequence of an action or of the non-action of the party concerned. Furthermore, the rules on avoidance actions should cover not only legal acts performed by the debtor, but also legal acts performed by the debtor’s counterparty or by a third party.

(8)

This Directive lays down minimum rules on avoidance actions. Therefore, with the sole exception of the limitation period for avoidance actions set out in this Directive, Member States should be able to maintain or adopt provisions on avoidance actions that are more favourable to the general body of creditors than those under this Directive. Member States should also be able to provide for presumptions or requirements that alleviate the burden of proof in favour of the party claiming that the legal act is void, voidable or unenforceable.

(9)

To protect the legitimate expectations of a debtor’s counterparty, any interference, as a result of an avoidance action, with the validity or enforceability of a legal act should be proportionate to the circumstances under which that legal act was perfected. Such circumstances include the debtor’s intent, the knowledge of the counterparty, or the time that elapsed between the perfection of the legal act and the commencement of the insolvency proceedings. Therefore, it is necessary to distinguish between a variety of specific grounds for avoidance actions that are based on common and typical fact patterns and that complement the general prerequisites for avoidance actions. Any such interference should also respect the fundamental rights enshrined in the Charter of Fundamental Rights of the European Union (the ‘Charter’).

(10)

Avoidance actions should cover legal acts perfected within a certain minimum period prior to the date of submission of a request for the opening of insolvency proceedings or, in Member States where insolvency proceedings can be commenced by a resolution of the members of the administrative, management or supervisory body of the debtor, prior to the date of such a resolution. The ability to bring an avoidance action should not be dependent on the time that a court takes to examine a request to open insolvency proceedings or for a resolution to be adopted, pursuant to national law.

(11)

For the purposes of avoidance actions, a distinction should be drawn between legal acts where the claim of the counterparty was due and enforceable and has been satisfied or secured as owed (‘congruent coverage’) and legal acts where performance did not entirely correspond to the creditor’s claim (‘incongruent coverage’). Examples of incongruent coverage include: premature payments; the satisfaction of a debt by unusual means of payment; the subsequent collateralisation of a previously unsecured claim, which was not agreed upon in the original debt agreement; the granting of an extraordinary termination right or other amendments not provided for in the underlying contract; the waiver of legal defences; and objections or the acknowledgement of disputable debts. In the case of congruent coverage, the avoidance ground of preferences should only be able to be invoked if the creditor of the void, voidable or unenforceable legal act knew at the time of the transaction that the debtor was insolvent. In the case of both congruent and incongruent coverage, the terms ‘satisfaction’ and ‘collateralisation’ of the claim of the counterparty should be interpreted broadly, to include acts such as those which create a right to offset or grant creditors privileged status.

(12)

The rules on avoidance actions introduced by this Directive should not apply to certain legal acts that constitute congruent coverage, namely legal acts that are performed directly in exchange for fair consideration to the benefit of the debtor’s assets. Those legal acts aim to support the ordinary daily operation of the debtor’s business. In order not to be subject to the rules on avoidance actions, such legal acts should have a contractual basis and require the direct exchange of the parties’ mutual performances. Furthermore, performance and counter-performance arising from those legal acts should be equivalent in value and the counter-performance should benefit the debtor and not a third party. Legal acts to which the rules on avoidance actions should not apply include: prompt payment of commodities, wages, or service fees; payment in cash or by card of goods necessary for the debtor’s daily operations; delivery of goods, products, or services against payment by return; creation of a security right against disbursement of the loan or during the continuation of a loan, where that is necessary, in the context of national rules, to maintain an equivalence in value between performance and counter-performance; and prompt payment of public fees in exchange for consideration such as admittance to public grounds or institutions. However, the rules on avoidance actions should apply to the granting of credit. It should be possible to consider that the payment of wages to a debtor’s worker, in accordance with national law, is direct performance where they are paid within three months of the performance of the services by that worker.

(13)

The payment by a debtor of an outstanding debt to a third party in a three-party relationship, such as where a subsidiary company pays its parent company’s debt to a third party, should not automatically be considered as a legal act of the debtor in exchange for no or manifestly inadequate consideration. In such cases, the payment by the debtor can be reciprocal to the performance by the third party of its obligation to the parent company, which might have given the debtor a direct or indirect advantage, and the third party might not have had the possibility to reject the payment by the debtor.

(14)

It should not be possible to invoke the fact that the enrichment resulting from the void, voidable or unenforceable legal act is no longer available in the property of the party which benefited from that legal act (‘lapse of enrichment’) where that party was aware of the circumstances on which the avoidance action is based. However, as this Directive lays down minimum rules on avoidance actions, Member States can decide not to allow the party that benefited from the legal act to invoke the lapse of enrichment defence even where that party was not aware of the circumstances on which the avoidance action is based.

(15)

New financing or interim financing provided in accordance with national law as part of a restructuring attempt, including in the course of a preventive insolvency procedure under Title II of Directive (EU) 2019/1023 of the European Parliament and of the Council (9), should be protected in subsequent insolvency proceedings.

(16)

As an instrument of minimum harmonisation, this Directive is without prejudice to national laws on the validity of legal acts subject to avoidance actions. It is, therefore, for Member States to decide whether the detrimental legal act is to be considered ipso jure void, or rendered ineffective or unenforceable, or whether such legal acts can be annulled only by decision of the court. Moreover, this Directive does not set out the conditions under which a debtor is to be considered unable to pay its debts as they fall due. Therefore, for the purposes of this Directive, the determination of whether a debtor is unable to pay its debts as they fall due, including of whether such a determination requires that the debtor is generally unable to pay its debts as they fall due, is to be made in accordance with national law.

(17)

The main consequence of a legal act being void, voidable or unenforceable as a result of an avoidance action is an obligation for the party benefitting from that legal act to return the benefit obtained to the insolvency estate. The notion of ‘benefit’ in this context should include emoluments, where relevant, and interest, in accordance with applicable national law. The benefit could be considered to have been returned either where the actual benefit itself is returned or where the equivalent monetary value of that benefit is paid, in accordance with national law. It should be possible to bring avoidance actions against individual successors of the debtor if, at the time of the acquisition of the assets subject to the avoidance action, they were aware of the circumstances on which the avoidance actions were based.

(18)

Parties who are closely related to the debtor, such as relatives, where the debtor is a natural person, or, where the debtor is a legal entity, those fulfilling decisive roles in relation to the debtor, are usually at an advantage with regard to information concerning the financial situation of the debtor. In order to prevent abuse of such positions, additional safeguards should be established. Consequently, in the context of avoidance actions, when the other party involved in a void, voidable or unenforceable legal act is a party closely related to the debtor, legal presumptions should be introduced about that party’s knowledge of the circumstances on which the avoidance actions were based. Those presumptions should be rebuttable and should aim to reverse the burden of proof to the benefit of the insolvency estate. Where the party which has benefited from a void, voidable or unenforceable legal act has since transferred the benefit obtained to a third party, the point in time for determining whether those parties are closely related should be the time of the transfer.

(19)

Improving the means available to insolvency practitioners to identify and trace assets belonging to an insolvency estate, as well as assets subject to avoidance actions, is essential to maximise the value of the insolvency estate. When performing their duties, insolvency practitioners can access information held in public data registers, some of which have been established under Union law and are interconnected at European level, such as the Business Registers Interconnection System (BRIS) referred to in Directive (EU) 2017/1132 of the European Parliament and of the Council (10) or the Insolvency Registers Interconnection system (IRI) established pursuant to Regulation (EU) 2015/848. Having access only to information held in public databases, however, is often not sufficient in order to identify and trace assets that are, or should form, part of an insolvency estate. In particular, insolvency practitioners face practical difficulties when they try to access asset registers located in Member States other than the Member State in which they have been appointed.

(20)

It is therefore necessary to lay down provisions to ensure that insolvency practitioners, when performing their duties in insolvency proceedings, have, either directly or indirectly, access to information held in databases which are not publicly accessible.

(21)

Immediate and direct access to bank account registers is often indispensable to maximise the value of insolvency estates. Therefore, rules should be laid down providing for immediate and direct access by the designated courts or administrative authorities of the Member States to information held in the bank account registers. For the purpose of identifying and tracing assets belonging to insolvency estates, as well as assets subject to avoidance actions, access can be needed not only to the bank account information of the debtor but also to the bank account information of third parties, where there are reasonable grounds to consider that they have benefited from void, voidable or unenforceable legal acts. Where a Member State provides access to bank account information through a central electronic data retrieval system, that Member State should ensure that the authority operating the retrieval system reports search results immediately and in an unfiltered way to the designated courts or administrative authorities.

(22)

In order to respect the right to the protection of personal data and the right to privacy, direct and immediate access to bank account registers should be granted to courts or to administrative authorities that are designated by the Member States for that purpose. Insolvency practitioners should therefore be allowed to access information held in those bank account registers indirectly, by requesting the designated courts or administrative authorities in the Member State where they were appointed to access the registers and perform the searches. Member States should be able to designate the same courts or administrative authorities for the purpose of accessing bank account registers both domestically and cross-border through the bank account registers interconnection system referred to in Directive (EU) 2024/1640 of the European Parliament and of the Council (11) (BARIS). Member States should be also able to provide that the conditions for access to and searches of bank account information should be verified by courts or authorities other than the courts or authorities designated under this Directive. Access to information should be granted only on a case-by-case basis, where relevant to specific insolvency proceedings for the purpose of identifying and tracing assets belonging to the insolvency estate, as well as assets subject to avoidance actions. However, as this Directive lays down minimum rules, Member States can adopt or maintain rules that provide for direct access and searches by insolvency practitioners in their national bank account registers and electronic data retrieval systems. In cases where insolvency practitioners have direct access and can carry out direct searches, Member States are not required to designate courts or authorities for the purpose of accessing and searching their national bank account registers or electronic data retrieval systems, but remain under the obligation to designate courts or authorities for access and searches through BARIS.

(23)

Directive (EU) 2024/1640 provides that centralised automated mechanisms, such as central registers or central electronic data retrieval systems, are to be interconnected via BARIS, which is to be developed and operated by the Commission. Considering the growing importance of insolvency cases with cross-border implications and the importance of relevant financial information for the purpose of maximising the value of the insolvency estate in insolvency proceedings, the designated courts or administrative authorities should be able to access and search the bank account registers of other Member States directly through BARIS.

(24)

Access by the courts or administrative authorities designated under this Directive to bank account information across borders through BARIS is based on mutual trust among Member States derived from their respect of fundamental rights and of the principles recognised by Article 6 of the Treaty on European Union (TEU) and by the Charter, as well as the fundamental rights and principles provided for in international law and international agreements to which the Union or all the Member States are party, including the European Convention for the Protection of Human Rights and Fundamental Freedoms, and in Member States’ constitutions, in their respective fields of application. The power to access and search bank account information through BARIS under this Directive should be exercised in compliance with Union and national law, as well as national procedural safeguards on the protection of personal data.

(25)

Any personal data obtained by designated courts or administrative authorities or insolvency practitioners under this Directive should be processed only where it is necessary and proportionate for the purpose of identifying and tracing assets belonging to the insolvency estate in ongoing insolvency proceedings, in accordance with applicable data protection rules.

(26)

Directive (EU) 2024/1640 ensures that persons with a legitimate interest are granted access to beneficial ownership information, in accordance with data protection rules. For the purpose of tracing assets in the context of ongoing insolvency proceedings, insolvency practitioners should be granted access in a timely manner to specific categories of beneficial ownership information held in the interconnected central beneficial ownership registers, such as on the name, month and year of birth, the country of residence and nationality of the beneficial owner, as well as the nature and extent of beneficial interest held.

(27)

To ensure that assets can be traced efficiently in the context of cross-border insolvency proceedings, insolvency practitioners should be granted expeditious access to national registers and databases, even where those registers are located in a Member State other than that in which the insolvency practitioner concerned was appointed. Access should be granted without the involvement of any intermediary court or authority, allowing insolvency practitioners to communicate directly with the entities operating or maintaining the national registers or databases concerned. Member States should be allowed to provide for direct search by insolvency practitioners in the datasets contained by such registers or databases. The access conditions applying to insolvency practitioners appointed in another Member State should not be more cumbersome than those applying to domestic insolvency practitioners. Therefore, Member States should not apply different conditions for access solely on the basis that the applicant is an insolvency practitioner appointed in another Member State. Procedural aspects relating to receiving and granting requests submitted by insolvency practitioners, such as the language of the procedure or the verification of access conditions, should be governed by the law of the Member State in which the registers and databases are held.

(28)

In order to establish an effective and consistent system for the enforcement of debts against the assets of debtors, it is essential to prevent debtors from concealing their assets, including through the acquisition of financial instruments such as securities. The differences between national settlement systems, as well as the varying types and characteristics of financial instruments, can give rise to difficulties in accessing records and in identifying the ultimate beneficial owner of a financial instrument. Therefore, irrespective of the kind of register, database or other source of information used by a Member State, it is necessary for Member States to have in place a framework to facilitate the identification and tracing of the owners of financial instruments by making those national registers and databases accessible upon request.

(29)

In the context of liquidation in insolvency proceedings, national insolvency laws should allow for the realisation of the assets of a business through the sale of the business, or part thereof, as a going concern. For the purposes of this Directive, ‘sale as a going concern’ is understood as the transfer of a business, in whole or in part, to an acquirer in such a way that that business, or a sufficiently significant part thereof, can continue to operate as an economically productive unit. It is not understood to include the sale of the assets of the business piece by piece (‘piecemeal liquidation’).

(30)

It is generally assumed that a higher value can be recovered in liquidation by selling a business, or part thereof, as a going concern rather than by piecemeal liquidation. In order to promote the sale of a business as a going concern, national insolvency laws should provide for proceedings under which a debtor in financial distress, with the help, or under the supervision, of a monitor, can seek interested acquirers and prepare the pre-packaged sale of the business as a going concern (‘pre-pack proceedings’) before the formal opening of insolvency proceedings. The assets of the business subject to the pre-pack proceedings can then be quickly realised shortly after the formal opening of the insolvency proceedings. This Directive should lay down standards for pre-pack proceedings, while allowing Members States to adapt those standards to their existing national insolvency law. In order to ensure that the sale process is fair, the monitor should be independent from the debtor and any party closely related to the debtor. Member States should be able to provide for additional requirements regarding the monitor’s independence from equity holders or creditors. The pre-pack proceedings should consist of two phases, namely a preparation phase and a liquidation phase.

(31)

The aim of the preparation phase should be to find an appropriate buyer for the debtor’s business, or part thereof, and should be confidential, at least with regard to finding an appropriate buyer. The aim of the liquidation phase should be to approve and execute the sale of the debtor’s business, or part thereof, and to distribute the proceeds to the creditors, in accordance with national law. The liquidation phase should begin with a decision of a judicial body, or any other competent body, to formally open insolvency proceedings under national law, often leading to the winding up of the debtor. The debtor should not be precluded from continuing its business operations with the remaining part of its business after conclusion of the liquidation phase. The liquidation phase should be carried out by means of insolvency proceedings other than preventive restructuring procedures. In Member States where Regulation (EU) 2015/848 applies, the liquidation phase should be carried out by means of insolvency proceedings that are included in Annex A to that Regulation other than preventive restructuring proceedings.

(32)

Pre-pack proceedings are without prejudice to workers’ rights under Union and national law, including the involvement of workers’ representatives. Pre-pack proceedings should be governed by statutory or regulatory provisions and should be understood as proceedings in which the transfer of all or part of a business is prepared with the assistance of a monitor under the supervision of the court or competent authority, prior to formal insolvency proceedings being instituted with a view to the liquidation of the assets of the debtor. While the primary objective of the pre-pack proceedings is to enable the debtor’s assets to be liquidated by means of the sale of the business, or part thereof, as a going concern in the context of insolvency proceedings in order to satisfy the claims of all the creditors to the greatest extent possible, it can also serve to preserve employment.

(33)

This Directive is without prejudice to Directive 2001/23/EC. In light of the case law of the Court of Justice, namely the judgment of 28 April 2022 in Case C-237/20, Federatie Nederlandse Vakbeweging (12), the liquidation phase is covered by the exception provided for in Article 5(1) of Directive 2001/23/EC where the pre-pack proceedings have the primary objective to satisfy the claims of creditors to the greatest extent possible whilst preserving employment as much as possible.

(34)

The introduction of pre-pack proceedings under this Directive should not lead, in any way, to restrictions on the powers of insolvency practitioners or on the possibility of selling the business as a going concern in insolvency proceedings under national law.

(35)

The provisions of this Directive regarding pre-pack proceedings do not replace national substantive rules, in particular those on the ranking of creditors’ claims, the distribution of proceeds, the nature, scope and form of creditors’ participation, or the remuneration of the insolvency practitioner. In the event that a court or competent authority does not authorise the sale of a business, or part thereof, as proposed by the monitor, insolvency proceedings should proceed in accordance with the applicable national insolvency law. The start of the liquidation phase is subject to requirements under national law for the opening of insolvency proceedings, such as the existence of a ground for opening such proceedings.

(36)

The pre-pack proceedings provided for under this Directive should be applied to debtors that are legal persons. Member States should be allowed to extend the application of pre-pack proceedings to natural persons who are entrepreneurs.

(37)

Debtors should be able to benefit from a temporary stay of individual enforcement actions. The stay should be available either in the preparation phase or in the context of another type of insolvency proceedings in which the debtor remains totally, or at least partially, in control of its assets and day-to-day operation of its business and in which the sale of the debtor’s business, or part thereof, as going concern can be continued and concluded. Where the stay is made available within the preparation phase, it should be available under the conditions set out in Articles 6 and 7 of Directive (EU) 2019/1023 and the national laws transposing that Directive.

(38)

Pre-pack proceedings should ensure that the best bid received during the preparation phase is either submitted to the court or competent authority for authorisation or to the creditors for approval. The monitor should assess and state whether piecemeal liquidation would recover more value for creditors than the market price obtained through the sale of the business, or part thereof, as a going concern. The going-concern value of a business might reasonably be expected to be higher than its piecemeal liquidation value because it is based on the assumption that the business will continue its operations with the minimum of disruption, maintain the confidence of financial creditors, shareholders and clients, and continue to generate revenue. No undue burden is to be placed on the monitor or on the sale process and, in particular, a full-fledged valuation should not be required in the preparatory phase of the process, unless the prospective buyer is a party closely related to the debtor. It should be possible for Member States to require the monitor to take into account elements other than price, including the public interest or the viability of the business. However, a requirement to impose increased scrutiny should apply where the bid that is considered the best bid is made by a party who is closely related to the debtor. It should be possible for Member States to require the monitor to justify its conclusion that the bid identified as the best bid does not put the creditors in a worse situation than that they would be in as a result of an alternative mechanism for addressing the debtor’s insolvency. The monitor should document the preparation of the sale process in order to provide an appropriate basis for the authorisation or approval of the best bid.

(39)

The preparation phase should be limited in time. Member States should provide for a maximum duration that can be shorter than the length of the stay of individual enforcement actions provided for in Directive (EU) 2019/1023. Where, in the course of the preparation phase, it becomes evident that the objectives of the pre-pack proceedings cannot be achieved, Member States should be able to provide that the pre-pack proceedings can be terminated. Such situations can occur where the debtor fails to cooperate with the monitor or to act with due diligence during the preparation phase. Another such situation is where there is no reasonable prospect of selling the business as a going concern, for example where the books and records of the debtor are incomplete or so deficient that it is impossible to ascertain its business and financial situation. Furthermore, in cases where national law stipulates that the sale process in the preparation phase be competitive, transparent and fair and meet market standard, acts of the debtor that do not comply with those requirements can be viewed as a failure to act with due diligence. Nevertheless, it should be possible for Member States to provide that, even if the debtor fails to cooperate with the monitor or to act with due diligence, where the continuation of the preparatory phase is in the general interest of the creditors, it is possible for the court or competent authority to limit the debtor’s rights to administer its business in accordance with applicable insolvency law, with a view to concluding the pre-pack proceedings.

(40)

In order to ensure that a business is sold for the best price through the pre-pack proceedings, Member States should ensure that the sale process in the preparation phase is conducted under high standards of competitiveness, transparency and fairness. Alternatively, Member States should be able to provide that, after the opening of the liquidation phase or the presentation of the recommended best bidder, a public auction is run to select the best bid or the bid recommended by the monitor is approved by the creditors. It is for Member States to decide whether the approval of the creditors is given by the general meeting of creditors or by the creditors’ committee.

(41)

Member States are not precluded from providing that a court or a competent authority that has established that the sale process is not competitive, transparent and fair and does not meet market standards can decide to proceed with a public auction during the liquidation phase or with the piecemeal liquidation of the debtor’s assets in insolvency proceedings opened within the pre-pack proceedings.

(42)

It is necessary that all creditors holding claims against the insolvent debtor have the right to participate in the liquidation phase of the pre-pack proceedings. It should be possible for such claims to be duly recorded, examined and satisfied in accordance with the applicable insolvency framework.

(43)

In insolvency systems that are based on the principle of creditor autonomy, Member States should be able to provide that it is for the general meeting of creditors or the creditors’ committee to authorise the sale of the debtor’s business, or part thereof, in accordance with national law.

(44)

Where a Member State opts to require high standards in the preparation phase, the monitor or, where and to the extent that Member States so decide, the debtor-in-possession should be responsible for ensuring that the sale process is competitive, transparent and fair and meets market standards. In order to meet market standards, the sale process should be compatible with standard rules and practice on mergers and acquisitions in the Member State concerned, potentially interested parties should be invited to participate in the sale process, the same information should be disclosed to potential buyers, enabling them to exercise due diligence, and bids from interested parties should be obtained through a structured process.

(45)

When a public auction is run prior to or after the opening of the liquidation phase, the bid selected by the monitor during the preparation phase should be used as an initial bid (‘stalking horse bid’) for the purposes of the auction. In the preparation phase, the debtor should be able to offer incentives to the ‘stalking horse bidder’ by agreeing, in particular, to the reimbursement of expenses or break-up fees if a better bid is selected through the public auction. Member States should, nevertheless, ensure that such incentives are proportionate and do not deter other potentially interested bidders from participating in the auction.

(46)

The monitor should document and report on each step of the sale process in writing. Those documents and reports should be made available in digital format in a timely manner. Member States should ensure that the monitor is subject to the same confidentiality requirements as an insolvency practitioner.

(47)

To prevent the value of a business from depreciating merely because it is subject to insolvency proceedings, it is important to ensure that operational counterparties, such as suppliers or customers of the debtor concerned, are taken over by the acquirer and not affected by the pre-pack proceedings. Therefore, the opening of insolvency proceedings should not result in the early termination of contracts under which the parties still have to perform certain obligations and which are necessary for the continuation of the business. Such termination would unduly jeopardise the value of the business, or part thereof, to be sold through the pre-pack proceedings. It should, therefore, be ensured that such contracts are assigned to the acquirer of the business of the debtor, or part thereof, even without the debtor’s counterparty to the contract giving its consent to the assignment. Nevertheless, there can be situations in which the transfer of certain obligations under such contracts cannot reasonably be expected, such as when the acquirer is a competitor of the counterparty to the contract. Member States should be able to provide that the consent of the debtor’s counterparty or counterparties is required for the assignment of contractual obligations, depending on the type of contract, the nature of the parties, or the interests of the business concerned. Member States should be able to require the consent of the licensee to terminate contracts relating to licences of intellectual and industrial property rights, of which the debtor is the licensor, as the protection of those rights in the event of the insolvency of the licensor encourages investment in the development of such rights.

(48)

The provisions of this Directive on the automatic assignment of contracts to the acquirer are without prejudice to the right of the counterparty to terminate the contract in accordance with its terms or the right of the counterparty to take measures under the applicable contract law that aim to ensure compliant performance of the obligation by the debtor for cases of non-performance or defective performance, such as the counterparty’s right to require a deposit or security interests or the right of retention of performance before or after the assignment.

(49)

Member States should also be able to introduce an additional safeguard for the protection of the counterparty’s legitimate interests, by granting the counterparty the right to terminate the contract upon no less than three months’ notice where the counterparty would be unfairly prejudiced by an obligation to continue to perform the contract up until the earliest date by which it could otherwise be able to terminate the contract under national law. This Directive is without prejudice to the rules on the burden of proof concerning unfair prejudice under national law.

(50)

In order to increase the attractiveness of asset deals for potential buyers and thereby to achieve higher prices in going-concern sales, Member States should ensure that purchasers acquire businesses free and clear of debts and liabilities. Therefore, creditors’ claims should be satisfied from the proceeds of the sale and not made directly against the purchaser of a business. However, obligations arising from executory contracts or employment relations, for example obligations relating to occupational pension entitlements, which are transferred to the acquirer, remain with the acquirer. Additionally, Member States should be able to introduce or maintain rules providing that the conduct of the debtor is taken into account in the assessment of the acquirer’s liability for damages, if that conduct can be imputed to the acquirer under the applicable insolvency law. Such rules can apply to damages covered by environmental law or damages connected to the ownership or control of certain assets.

(51)

The release of security interests in or other encumbrances attached to assets belonging to the debtor’s business should be governed by national law. Where the law in a Member State requires the express consent of the holder of a security interest for the release of that interest, that Member State should be able to provide for a derogation from that requirement, except where the holder objects to the release.

(52)

The best bid should not be disqualified in the preparation phase solely on the basis that it is submitted by a party closely related to the debtor. Parties closely related to the debtor should, therefore, be allowed to submit a bid and, where their bid is successful, to acquire the business free and clear of debts and liabilities. The eligibility of closely related parties to bid should, nevertheless, be subject to enhanced scrutiny in the bidding process. Providing equal opportunities for other bidders, particularly in relation to access to information and ensuring information symmetry, facilitates quick and efficient pre-pack proceedings and allows other bidders to prepare their bids.

(53)

Where the bid submitted by a party closely related to the debtor is considered as the best bid, Member States should be able to introduce additional safeguards for the authorisation and execution of the sale of the debtor’s business or part thereof. Such safeguards can include the obligation for the acquirer to ensure business continuity for a minimum period of time or the maintenance of employment contracts.

(54)

The possibility of enforcing pre-emption rights in the course of the sale process would distort competition in the pre-pack proceedings. Potential bidders might abstain from bidding if rights holders could, at their discretion, reject those bids, irrespective of the time and resources invested or the economic value of the bids concerned. In order to ensure that winning bids reflect the best price on the market, pre-emption rights should not be conceded to bidders, nor should such rights be enforced in the course of the liquidation phase. Holders of pre-emption rights that were granted prior to the commencement of the pre-pack proceedings should, instead of invoking their pre-emption rights, be invited to participate in the bidding. Nevertheless, Member States should be able to enforce statutory pre-emption rights that are not affected by the insolvency of the debtor.

(55)

Member States should allow secured creditors to participate in the bidding process in the pre-pack proceedings by offering the amount of their secured claims as consideration for the purchase of the assets over which they hold a security (‘credit bidding’). Credit bidding should not, however, be used in such a way as to provide secured creditors with an undue advantage in the bidding process, such as where the amount of their secured claim against a debtor’s assets is above the market value of the debtor’s business. As such, a secured creditor should not be able to bid the entire amount of their claim against the debtor’s business, where the business is worth less than that amount, as this could deter potential competitors from participating in the bidding process. Therefore, this Directive should restrict the amount that a creditor can bid in cases where there are under-secured or under-collateralised claims. In such cases, a secured creditor should only be allowed to bid an amount that is to be offset against the purchase price, without exceeding the market value of the business. The restriction on a creditor’s ability to bid the entire value of a secured claim does not imply that that claim loses its security interest in respect of the portion of the claim that cannot be used in the bidding process.

(56)

This Directive is without prejudice to the application of Union competition law, in particular Council Regulation (EC) No 139/2004 (13), and does not prevent Member States from enforcing national merger control systems. When selecting the best bid, the monitor should be allowed to take into account the regulatory risks presented by bids that require the authorisation of competition authorities and should be able to consult those authorities in accordance with applicable rules. The disclosure of information by the competition authority should not be contrary to national rules on the protection of business secrets. It should remain the responsibility of the bidders to provide all necessary information to assess those risks and to engage with the competent competition authorities in a timely manner in order to mitigate those risks. In order to increase the likelihood that pre-pack proceedings are successful, in the event that a bid poses such risks, the monitor or the debtor should be required to perform its role in a way that facilitates the submission of alternative bids.

(57)

Directors oversee the management of the affairs of a company and have the best overview of its financial situation. Directors are therefore among the first to realise whether a company is insolvent. A late filing for insolvency by directors can lead to lower recovery values for creditors. Member States should therefore introduce a duty for directors to submit a request for the opening of insolvency proceedings within a specified period. In the context of that duty, Member States should be allowed to define insolvency differently from the event that triggers the opening of insolvency proceedings. Where a Member State has more than one insolvency threshold, it is for that Member State to determine which of those thresholds triggers the duty to submit a request for the opening of the insolvency proceedings. For the purposes of this Directive, Member States should also specify to whom directors’ duties apply, taking into account the range of responsibilities that certain persons or bodies can have with respect to decisions relating to the management of companies.

(58)

A request for the opening of insolvency proceedings should be submitted within a specified time limit. Member States should ensure that that time limit is no longer than three months from the moment the directors become aware, or can be reasonably expected to have become aware, that the company is insolvent. If the company regains its solvency before the expiry of that time limit, but becomes insolvent again thereafter, Member States should be able to provide that a new time limit runs from that moment.

(59)

When a company becomes insolvent, the protection of the general body of creditors can be achieved in different ways. Therefore, Member States should be able to provide that the duty of the directors to submit a request for the opening of insolvency proceedings can be discharged by informing the public of the company’s insolvency through a notification in a public register in order to ensure that the creditors are able to apply for insolvency proceedings. Furthermore, Member States should also be able to suspend the duty of directors to submit a request for the opening of insolvency proceedings if the directors take measures with a view to protecting the interests of the general body of creditors and those measures ensure a level of protection to the general body of creditors which is equivalent to that ensured by the submission of a request for the opening of insolvency proceedings. Such measures can include, for example measures taken by the owners of the company to restore the company’s solvency.

(60)

To ensure that directors do not act against the interests of creditors by delaying the submission of a request for the opening of insolvency proceedings, despite signs of insolvency, Member States should lay down provisions making directors civilly liable for failing to submit such a request. In such cases, directors should compensate creditors for any damage resulting from the deterioration in the recovery value of the company compared to the situation that would have existed had the request been submitted on time. To the extent that this Directive does not provide for specific rules, all other aspects of civil liability, such as the calculation of damages or the burden of proof, should be governed by national law. Member States should also be able to adopt or maintain national rules on the civil liability of directors related to filing for insolvency that are stricter than those laid down by this Directive.

(61)

Where Member States allow directors to take measures to protect the interests of the general body of creditors, other than by discharging their duty to submit a request for the opening of insolvency proceedings, they should also lay down provisions that ensure that directors are liable for any damage caused to the creditors resulting from any deterioration in the recovery value of the company compared to the situation that would have existed had a request for the opening of insolvency proceedings been submitted. In such cases, the creditors should be put in the position they would have been in had the request to open insolvency proceedings been submitted by the directors within the time limit set by the Member States. It should be possible for Member States to provide for the release of directors from such liability where and to the extent that those directors are able to demonstrate, on the basis of objective circumstances and information that was ascertainable at the time the measures concerned were taken, that such measures were reasonably likely to secure an equivalent or better outcome for creditors than the outcome resulting from the submission of a request for the opening of insolvency proceedings. In such situations, national law on the discharge of the burden of proof should apply.

(62)

In order to promote an efficient and inclusive insolvency framework that supports entrepreneurship and economic renewal, Member States should be able to maintain or introduce simplified winding-up proceedings for microenterprises.

(63)

Where an entrepreneur has full or partial ownership of a company and is personally liable for all the debt of the company, the fact that the company does not have sufficient assets to cover the cost of the insolvency proceedings should not prevent the entrepreneur from obtaining a discharge of debt in accordance with Directive (EU) 2019/1023 and thus benefit from a second chance. While Member States are not required to introduce a new procedure for the discharge of debt, they should ensure access to procedures for the discharge of debt for entrepreneurs who are natural persons, and not for companies. This Directive concerns insolvent entrepreneurs who are liable for all the debts of a company and should not concern persons who are only partly liable for the debt of a company such as a guarantor for the company’s bank loan and other kinds of guarantees to one of the company’s creditors. This Directive only concerns denial of discharge of debt on the ground that no insolvency proceedings can be opened against the company because the company does not have sufficient assets to cover the costs of such insolvency proceedings. This Directive does not regulate other grounds for denial of discharge of debt, such as those provided for in Directive (EU) 2019/1023. When a person fulfils the conditions for discharge of debt, the date of the decision to refuse or not to open insolvency proceedings against the company can be applied instead of the date referred to in Article 21(1)(b) of Directive (EU) 2019/1023.

(64)

It is important to ensure that creditors are appropriately involved in insolvency proceedings so that their interests can be adequately considered. Creditors’ committees allow for better involvement of creditors in insolvency proceedings, in particular where creditors would otherwise be prevented from doing so individually due to limited resources, the economic significance of their claims, or the lack of geographic proximity. Creditors’ committees can help cross-border creditors better exercise their rights and ensure that they are treated fairly. Member States should allow a creditors’ committee to be established once insolvency proceedings are opened. Member States should also be able to provide that a creditors’ committee is established before insolvency proceedings are opened. Member States are not prevented from extending the application of the provisions concerning the establishment of creditors’ committees to preventive restructuring proceedings. A creditors’ committee should be established whenever the general meeting of creditors so decides or requests or, where national law does not provide for a general meeting of creditors, where creditors so request in accordance with national law. It should be possible for Member States to decide that the courts or competent authorities or insolvency practitioners can establish a creditors’ committee on their own initiative or at the request of one or more creditors, the insolvency practitioner or the debtor.

(65)

The burden of establishing and operating a creditors’ committee ought to be commensurate with its benefits. Therefore, Member States should be able to provide that no creditors’ committee is established where the burden of establishing and operating it would be higher than the economic relevance of the decisions it might take. This can be the case where there are too few creditors, where the large majority of creditors has a small share in the claim against the debtor, where possible delays caused by establishing a creditors’ committee would lead to the deterioration of the financial situation of the debtor, or where the value expected to be recovered from the insolvency estate is lower than the cost of establishing and operating the creditors’ committee. Such situations occur, in particular, in insolvency proceedings concerning debtors who are entrepreneurs or small enterprises, and in discharge procedures. Member States should be able to provide for the establishment of a creditors’ committee only for large undertakings within the meaning of Article 3(4) of Directive 2013/34/EU of the European Parliament and of the Council (14). In the case of smaller enterprises, it is possible that national law already provides, in other ways, for creditors’ interests to be adequately protected through insolvency proceedings.

(66)

The provisions of this Directive on the establishment of creditors’ committees should apply to debtors that are legal persons. Member States should be allowed to extend the application of those provisions to natural persons who are entrepreneurs.

(67)

Member States should clarify the functions of creditors’ committees and the requirements, duties and procedures for appointing their members. To avoid undue delay when establishing the creditors’ committee, members of the committee should be appointed expeditiously to ensure the efficiency of the insolvency proceedings. Member States should ensure that creditors are fairly represented within creditors’ committees and that cross-border creditors that are resident in a Member State other than that in which the insolvency proceedings are opened are not precluded from participating in creditors’ committees. When workers are among the creditors, those workers or their representatives should be eligible for appointment to creditors’ committees, unless there is another, at least equivalent, mechanism through which the interests of workers in insolvency proceedings can be represented. This could be the case where workers’ interests in collective proceedings are taken into account through mandatory consultations with their representatives on the direction of the proceedings or prior to major decisions, such as on the sale of assets or the transfer of the business. Workers whose wage claims are paid in full by a guarantee institution are not creditors.

(68)

Fair representation of creditors in creditors’ committees is particularly important in relation to unsecured creditors, including creditors with small claims. Member States should be able to provide that persons or entities other than creditors, such as workers’ representatives, public bodies or guarantee institutions, are also eligible for the appointment to creditors’ committees.

(69)

Creditors’ committees should be involved in insolvency proceedings and ensure that they are conducted in a way that protects creditors’ interests, including by following and being regularly informed of the activities of the insolvency practitioner, without requiring the insolvency practitioner to be subordinate to the committee. The role of creditors’ committees in monitoring the fairness and integrity of insolvency proceedings can only be performed effectively where they and their members act independently from insolvency practitioners and are accountable only to the creditors. The members of creditors’ committees should act in good faith when carrying out the functions of the committee. Creditors, members of creditors’ committees and any professionals employed by creditors’ committees should maintain the confidentiality of confidential information obtained in connection with the creditors’ committee’s activities.

(70)

While a creditors’ committee should be sufficiently large to ensure a diversity in the views and interests of the creditors, it should also be relatively limited in size to be able to deliver on its tasks effectively and in a timely manner. Member States should specify when and how the composition of a creditors’ committee needs to be altered, such as in the event that representatives are no longer able to act, including in the creditors’ best interests, or wish to withdraw. Member States should also specify the conditions for removing members who have committed a serious violation with respect to their duty to act in the interests of the general body of creditors. Such violations can include situations of conflicts of interest.

(71)

The working methods of creditors’ committees should be transparent and effective. Member States should therefore lay down requirements concerning the working methods of creditors’ committees, specifying the, voting procedure, including eligibility to vote and the necessary quorum, record-keeping of the decisions taken, and how the impartiality and the confidentiality of their work is ensured. Member States should ensure that the working methods can be further specified by creditors’ committees by means of protocols.

(72)

Creditors should be able to participate and vote electronically, or to delegate their voting rights to a duly authorised third person. The possibility to delegate would be particularly beneficial for creditors resident in Member States other than the Member State in which the insolvency proceedings are opened.

(73)

Creditors’ committees should be granted sufficient rights to perform their functions efficiently and effectively. Member States should ensure that creditors’ committees act in a transparent manner and can interact with insolvency practitioners, courts, the debtor-in-possession, and the creditors that they represent, as necessary, to enable creditors’ committees to form and communicate their views on matters of direct interest and relevance to creditors, and for those views to be duly considered in proceedings. Member States should provide for the right of creditors’ committees to request information from insolvency practitioners and, where applicable, debtors-in-possession. Member States should provide for a right of creditors’ committees to be heard on major decisions. Member States should be able to allow the general meeting of creditors to delegate decisions to the creditors’ committee. Member States should also be able to provide for the right of creditors’ committees to appoint a secretary and to request external advice on matters in which the creditors they represent have an interest.

(74)

Since the operation of creditors’ committees incurs expenses, Member States should establish clear rules as to who bears those expenses. Member States should also establish safeguards to prevent the costs of creditors’ committees from reducing the recovery value of insolvency estates in a disproportionate manner.

(75)

To encourage creditors to become members of creditors’ committees, Member States should limit their civil liability for carrying out their functions in accordance with this Directive. Nonetheless, it should be possible to remove members of the creditors’ committee that have violated their duties intentionally or in a grossly negligent manner and hold them liable for that violation. In those cases, Member States should provide that those members are held individually liable for the detriment caused by their misconduct. Member States should be able not to apply such a limitation of civil liability where the expenses for an insurance covering the personal liability of the members of a creditors’ committee is borne by the insolvency estate. Where Member States entrust creditors’ committees with greater powers than those provided for by this Directive, allowing them, for example, to take decisions concerning the assets of the debtor or to accept transactions, they should be able to provide that the members of creditors’ committees are held liable in the same manner as insolvency practitioners.

(76)

To ensure enhanced transparency of the key features of national insolvency proceedings and, especially, to help cross-border creditors assess what would happen to their investments if those investments became involved in insolvency proceedings, investors and potential investors should be granted easy access to that information in a pre-defined, comparable and user-friendly format. Member States should prepare a standardised key information factsheet and make it available to the public. The Commission should make key information factsheets available to the public in a multilingual format. A key information factsheet would be an important tool for potential investors to make a quick assessment of a given Member State’s rules on insolvency proceedings. It should contain sufficient explanations to allow the reader to understand the information therein without having to refer to other sources of information. Key information factsheets should include practical information on the conditions that trigger the opening of insolvency proceedings as well as on the steps to be taken to request the opening of insolvency proceedings or to lodge a claim. Since Member States are already required to provide information on their national rules on insolvency procedures under Regulation (EU) 2015/848, it is important to ensure that information provided under this Directive is consistent with information provided under that Regulation. To that end, the Member States should be able to provide the information required by this Directive through the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC (15).

(77)

In the event of exceptional emergency situations stemming from natural disasters or other catastrophic events which seriously disrupt economic activities at the level of a Member State or its regions, Member States should be able to act quickly in order to minimise the adverse impact of those situations on the economy. Such situations have arisen in the context of the COVID pandemic and might arise in the context of a systemic crisis as defined in Directive 2014/59/EU or in situations where State aid is compatible with the internal market to repair damage caused by natural disasters or exceptional occurrences pursuant to Article 107(2), point (b), of the Treaty on the Functioning of the European Union. In such situations, which imply the risk of widespread insolvencies, including for companies that would be viable under ordinary circumstances, Member States should be able to temporarily derogate from certain provisions of this Directive. The derogations should be limited in scope and time to what is essential to address the exceptional situation, for example by being restricted geographically to the region in the Member States that is affected by a natural disaster. Member States should notify the Commission of the measures which derogate from this Directive, their territorial scope, their duration and a justification of the necessity to implement them. The obligation of Member States to notify those measures should not affect their entry into force and application. The notification, which facilitates the Commission’s monitoring of the compliance of derogations with the relevant requirements, should be brought to the attention of other Member States without undue delay. The maximum duration of the derogation should be one year, and it should be possible to extend it by six-month periods subject to an additional controlling mechanism. Member States should notify the request for an extension no later than three months before the expiration of the derogation in order to allow the Commission to oppose it if needed.

(78)

In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (16).

(79)

This Directive is without prejudice to the protection of undisclosed know-how and business information, otherwise known as trade secrets, from unlawful acquisition, use and disclosure pursuant to Directive (EU) 2016/943 of the European Parliament and of the Council (17).

(80)

Since the objectives of this Directive cannot be sufficiently achieved by the Member States because differences between national insolvency frameworks would continue to raise obstacles to the free movement of capital and the freedom of establishment, but can rather be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 TEU. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

(81)

This Directive respects the fundamental rights and observes the principles recognised by the Charter, in particular the right to respect for private and family life, the right to the protection of personal data, the freedom to choose an occupation and right to engage in work, the freedom to conduct a business, the right to property, workers’ right to information and consultation as well as the right to a fair trial.

(82)

Regulation (EU) 2016/679 of the European Parliament and of the Council (18) applies to the processing of personal data for the purposes of this Directive. Regulation (EU) 2018/1725 of the European Parliament and of the Council (19) applies to the processing of personal data by the Union institutions and bodies for the purposes of this Directive.

(83)

The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 and delivered an opinion on 6 February 2023 (20),